Gold prices have increased with the amount of global net negative-yielding debt

• Gold continued its strong June, closing the week higher (LBMA 0.8%, XAU 0.7%) for the sixth straight week. It was as high as $1,440 on Tuesday, but gave up some of its gains late in the week as Fed Chairman Powell made comments that a 50bps cut in July was ‘too much’. Gold had its best month in two years, rallying nearly 9%; it is up 10% this year.

 

• Gold made all-time highs in a few currencies last week, most notably the Australian dollar, but gave back some of its USD early-week gains as it became the most overbought (RSI) on a weekly basis since 2016. Given the sharp move over the month of June, a pullback would not be unexpected. $1,365 should act as strong support.

 

Gold price

 

Source: Bloomberg

 

• As global yields continue to fall, and in some cases turn negative, there appears to be a direct correlation between global net negative yielding debt and the price increase in gold, highlighting that as yields decrease, the opportunity cost of holding gold decreases making it more attractive.

 

Amount of global negative net debt and price of gold

 

Source: Bloomberg

 

• Global gold-backed ETFs grew 5% in June, adding $5.7bn, or 129t, the most inflows in tonnage since February 2016. Total AUM grew by $15bn or a 15% increase over the month, the largest increase since 2012. We will release our monthly/1st half gold-backed ETF flows report on Tuesday, 7/9.

 

• COMEX net longs continued to increase meaningfully to 868t from 737t, the highest level since Q3 2016.

 

COMEX net longs

Source: CFTC, World Gold Council

 

• Investors continue to favor buying calls versus puts, which is reflected in put/call skew which remains at an all-time low.

 

3m put/call skew

 

Source: Bloomberg, World Gold Council